Foldvary: Do Corporations Have Natural Rights?

Editorial

Do Corporations Have Natural Rights?

by Fred E. Foldvary, Senior Editor

On Tuesday, June 15, the city council of Berkeley, California, unanimously passed a ‘Resolution on Corporate Constitutional Rights.’ It directs the city manager to send the resolution to government representatives. The resolution calls for amending the U.S. and California constitutions to declare that corporations are not granted the protections or rights of persons, including constitutionally protected speech.

A corporation is basically a contract among co-owners under rules set by government. The shareholders own rights to the property and profits of the organization. To limit the rights of the corporation is to limit the rights of the owners. As human beings, the owners have natural rights, and these human rights extend to any contract they create. The shareholders of corporations delegate to their governing boards the authority to act as their representative, so any limitation on the speech and other rights of the directors of corporations is a limitation on the human rights of the owners. Special restrictions on the freedom of corporations have no justification.

The resolution states that since ‘corporation’ is not mentioned in the United States Constitution, the founders did not grant corporate rights. This proposition is wrong on two counts. First, it completely misunderstands the function of the U.S. Constitution. The Constitution constrains the power of the federal government. The U.S. federal government only has the powers specifically enumerated or listed in the Constitution. So if something is not mentioned, the federal government has no power over it. The fact that corporations are not mentioned therefore implies that the federal government has no authority over corporations as such, rather than, as implied by the Berkeley resolution, giving the federal government unlimited power.

Secondly, the rights expressed in the U.S. Constitution, such as freedom of speech, are not ‘granted rights,’ as the resolution wrongly states. The Constitution recognizes natural and common-law rights that exited prior to the Constitution; indeed the 9th Amendment declares that rights not enumerated are also retained by the people. Thus, the U.S. government did not grant rights to corporations, but only respects moral and legal rights they already had.

The resolution states that corporations are created as artificial entities. But a corporation is no more artificial than any other form of organization. Is a partnership artificial? Suppose you and a friend create the ‘Choochoo’ partnership to operate a train. The property owned by the partnership has signs saying ‘Choochoo.’ The partnership is artificial in that it was created by human action, but then in that sense any human act is artificial. Natural rights apply to artificial agreements, contracts, and organizations, because all human action is artificial.

The resolution states that historically, corporations have been chartered by state governments to serve the public interest. And what is the public interest? The greatest public interest is liberty, the right of each person to do as he wishes so long as he does not coercively harm others. So long as a corporation does not harm others, or compensates them when there is a liability rule, it serves the public interest. There is no moral obligation to do anything beyond that.

The fact that the U.S. states have historically chartered corporations does not imply that corporations morally or economically require such chartering. Corporations could exist without government charters. A corporation as such is just a type of organization.

A partnership does not inherently require any government charter. There are limited partnerships that have two classes of partners. The general partners run the company and have unlimited liability, while the limited partners invest funds and have rights to a share of the profits, but have no personal liability for the debts of the partnership. Without any special government laws on partnerships, the limited partners would have common-law limited liability if their status is that of a lender rather than owner. In effect, they lend funds to the partnership, and are paid returns not at a fixed rate of interest but as shares of the profits. Lenders have no more liability than the fund they loan.

Likewise, without any corporate laws or charters, the shareholders would be contractually lenders who, like partners, are paid shares of profits rather than fixed rates of interest. The shareholders vote for the board, but this is no different from a contract between a bank and a partnership enabling the bank to be a general partner with a say in running a company. The main governing difference between a partnership and a corporation is that in a partnership, the general partners are fixed by contract, whereas in a corporation, the general partner-directors are elected. That the bondholders may vote for the board is simply a contractual agreement.

Government charters that treat corporations as persons actually make outcomes worse for corporations, because their profits are taxed twice, once as corporate profits, and then again as dividend income by the shareholders. If American corporations are so powerful, why have they not eliminated this double taxation?

The Berkeley resolution states that ‘corporations dominate the political process’ and spend vast amounts of money to influence elections. But other organizations also dominate and influence: labor unions, trial lawyers, farmers, churches, and real-estate owners. These special interests do dominate government policy, but only because the voters let them. Voters keep electing the candidates of the major parties which receive campaign funds from the dominant interests. The minor parties that oppose corporate welfare and other privileges get only a tiny vote.

The remedy for the privileges and rent-seeking by corporations and other moneyed and landed interests is to restructure democracy into small-group voting where the demand for campaign money would evaporate. But the Berkeley anti-corporation resolution does not call for this. It seeks only to treat the effects of dysfunctional mass democracy rather than cure the cause.

The ultimate legal privilege is not a corporate charter but a land charter legally enabling the title holder to obtain the wealth created by the human action of other persons. State-granted land charters let the title holders collect rent from tenants, rent which is pumped up by government-provided public works and services, financed by the tax-theft of the wages of labor. This force redistribution from wages to land rent is the ultimate privilege, and much of corporate profit is really land rent disguised as interest and profit.

The truly progressive policy would be a call to eliminate this deeper state-granted land-rent privilege and the statist theft of earned income. The obsession with corporations reflects ignorant reactions to what is superficial and visible, rather than an understanding of the deep and unseen reality. The Berkeley anti-corporate crowd does sees the dog rather than the cat. They know not and know not that they know not. Their hearts may be in the right place, on the left side of the body, but like other misled progressives, they need to get their minds on the right track, which is ‘share rent and trade freely.’ That’s the only corporate policy we need.

Copyright 2004 by Fred E. Foldvary. All rights reserved. No part of this material may be reproduced or transmitted in any form or by any means, electronic or mechanical, which includes but is not limited to facsimile transmission, photocopying, recording, rekeying, or using any information storage or retrieval system, without giving full credit to Fred Foldvary and The Progress Report.What are your views? Share your opinion with The Progress Report!

We are Hanno Beck, Lindy Davies, Fred Foldvary, Mike O'Mara, Jeff Smith, and assorted volunteers, all dedicated to bringing you the news and views that make a difference in our species struggle to win justice, prosperity, and eco-librium.

4 Responses to Foldvary: Do Corporations Have Natural Rights?

Fred, It looks like we are in disagreement concerning corporations.[Do Corporations Have Natural Rights?].

I’m sure you’re familiar with Jefferson’s distrust of corporations, and his wish to control them constitutionally.

But a corporation exists only by human intent and is protected by human laws. Humans, on the other hand, posess rights that would exist, just as their minds, brains, and consciousness would exist should the Constitution dissolve tomorrow. A corporation does not have “free speech” precisely because the corporation is incapable of speech of any kind, free or otherwise, except as representative of ownership. Quite simply, the corporation has no speech, period. If the ownership wishes to exercise rights of free speech as the ownership, then let it do so.

I partially agree with you on one point. The corporation can exist without government charter, but in doing so, it would also exist purely driven by the free market without help from the government. In North Carolina, personal income taxes are among the highest of any state in the region, yet corporations are given millions by state government to lure them in for job creation.

Statistically, however, over 90% of new wealth in the state is created by small businesses with less than a hundred employees, and 76% of new jobs are created by those same businesses. They do not get that special help from the state, primarily because it is easier for the state to control a few massive conglomerates with hundreds of workers than it is to control hundreds of small businesses with a few workers.

In studying the US Constitution, I realized that corporations do lose the “person” status under the first part of the 14th Amendment, but that same loss allows government to control corporations, and by that process, control its employees.

We are left with two possible solutions: either declare the corporation as a person with all rights and immunities guaranteed by the Constitution, or allow the corporation to exist as a part of free contract outside of Constitutional law, subject to the local jurisdictions in the same way that “natural persons” are subject.

The corporation could then have “free speech” but its speech would be limited in the same fashion as a natural person’s.

I wish I could take it paragraph by paragraph and rebut every thing the author has stated, but there is no real facility to do it here.

Perhaps if he would repost the article on the discussion board or grant me the permission to do that I could have a better go at it.

I do not know where to begin. I will have to select a couple of things for now.

“The remedy for the privileges and rent-seeking by corporations and other moneyed and landed interests is to restructure democracy into small-group voting where the demand for campaign money would evaporate. But the Berkeley anti-corporation resolution does not call for this. It seeks only to treat the effects of dysfunctional mass democracy rather than cure the cause.”

WC: As much as I am infavor of smaller government and more accountablity in the campaign process it is only one of many goals that need to be achieved. I am also involved in the movment to limit the rights of corporate “personhood.”

WC: The power of the Corporation, as an unnatural legal entity in competition with natural individual rights, is a dysfunctional effect of a dysfunctional democracy that has the effect of enhancing and reinforcing it’s dysfunctionality. It is a symptom as much as a cause of a social disease.

WC: Corporations are not natural persons and have no more right to exist than the governments have that granted them their charters.

Do corporations and their owners have more rights than the people who instituted the government that granted them existance?

“The ultimate legal privilege is not a corporate charter but a land charter legally enabling the title holder to obtain the wealth created by the human action of other persons. State-granted land charters let the title holders collect rent from tenants, rent which is pumped up by government-provided public works and services, financed by the tax-theft of the wages of labor. This force redistribution from wages to land rent is the ultimate privilege, and much of corporate profit is really land rent disguised as interest and profit.”

WC: I would like to know who the “title holders” of the legal privledge of landowners are. Are state granted land charters granted to natural individual persons or artificially created legal entities called corporations?

What person or organization of persons is collecting or obtaining the wealth created by the human action of other persons if not corporate persons?

Corporations have replaced the old landed gentry class that owned the fudal Royal Estates we all used to be surfs on.

Anti-Corporate Activism is lazy and ignorant. The real machines of dominance and theft, though employed well by corporations, are irrelevent to them. By focusing on corporations these fools derail true progress against the real evils. Too bad they wont put in enough honest hours to discover the real villians. And instead rail at easy targets.

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Arts & Letters

Geonomics is …

a way to redirect all the money we spend on the nature we use – trillions of dollars annually. We can’t pay the Creator of sites and resources and are mistaken to pay their owners this biggest stream in our economy. Instead, as owners we should pay our neighbors for respecting our claims to land. Owners could pay in land dues to the public treasury, a la Sydney Australia’s land tax, and residents could get back a “rent” dividend, a la Alaska’s oil dividend. We’d pay for owning sites, resources, EM spectrum, or emitting pollutants into the ecosphere, then get a fair share of the recovered revenue. The economy would finally have a thermostat, the dividend. When it’s small, people would work more; when it’s big, they’d work less. Sharing Earth’s worth, we could jettison counterproductive taxes and addictive subsidies. Prices would become precise; things like sprawl, sprayed food, gasoline engines, coal-burning plants would no longer seem cheap; things like compact towns, organic foods, fuel cells, and solar powers would become affordable. Getting shares, people could spend their expanded leisure socializing, making art, enjoying nature, or just chilling. Economies let us produce wealth efficiently; geonomics lets us share it fairly.

close to the policy of the Garden Cities in England. Founded by Ebenezer Howard over a century ago, residents own the land in common and run the town as a business. Letchworth, the oldest of the model towns, serves residents grandly from bucketfuls of collected land rent (as does the Canadian Province of Alberta from oil royalty). A geonomic town would pay the rent to residents, letting them freely choose personalized services, and also ax taxes. Both geonomics and Howard were inspired by American proto-geonomist Henry George. The movement launched by Howard today in the UK advances the shift of taxes from buildings to locations. A recent report from the Town and Country Planning Association proposes this Property Tax Shift and their journal published research in the potential of land value taxation by Tony Vickers (Vol. 69, Part 5, 2000). (Thanks to James Robertson)

the Great Green Tax Shift maxed out”
Economically, taxing pollution and depletion does reduce pollutants and extracts – and thus the tax base; plus such taxes are regressive, requiring a safety net. On the other hand, collecting site rent is progressive and generates a revenue surplus payable as a dividend to residents, which can serve as the safety net.
Environmentally, taxes on waste and extraction do not drive efficient use of land, as does getting site rent. Better settlement patterns do reduce extraction upstream and pollution downstream.
Politically, green fees have less impact if applied locally; local is where grassroots movements have more impact. Yet getting rent usually entails shifting the property tax (or charging user fees), the province of local jurisdictions; both mayors and city voters have been known to adopt a site-value tax.
Ethically, putting into practice “tax bads, not goods” skirts the issue of sharing Mother Earth which collecting rent confronts head on. Since nothing is fixed until it’s fixed right, ultimately, greens must lead humanity into geotopia where we all share the worth of Mother Earth.

a manual. The world did not come without a way for people to prosper, and the planet to heal and stay well; that way is geonomics. Economies are part of the ecosystem. Both generate surpluses and follow self-regulating feedback loops. A cycle like the Law of Supply and Demand is one of the economy’s on/off loops. Our spending for land and resources – things that nobody made and everybody needs – constitutes our society’s surplus. Those profits without production (remember, nobody produced Earth) can become our commonwealth. To share it, we could pay land dues in to the public treasury (wouldn’t oil companies love that?) and get rent dividends back, a la Alaska’s oil dividend. Doing so let’s us axe taxes and jettison subsidies. Taxes and subsidies distort price (the DNA of exchange), violate quid pro quo by benefiting the well-connected more than anyone else, reinforce hierarchy of state over citizen, and are costly to administer (you don’t really need so much bureaucracy, do you?). Conversely, land dues motivate people to not waste sites, resources, and the ecosystem while rent dividends motivate people to not waste themselves. Receiving this income supplement – a Citizens Dividend – people can invest in their favorite technology or outgrow being “economan” and shrink their overbearing workweek in order to enjoy more time with family, friends, community, and nature. Then in all that free time, maybe we could figure out just what we are here for.

about the money we spend on the nature we use. It flows torrentially yet invisibly, often submerged in the price of housing, food, fuel, and everything else. Flowing from the many to the few, natural rent distorts prices and rewards unjust and unsustainable choices. Redirected via dues and dividends to flow from each to all, “rent” payments would level the playing field and empower neighbors to shrink their workweek and expand their horizons. Modeled on nature’s feedback loops, earlier proposals to redirect rent found favor with Paine, Tolstoy, and Einstein. Wherever tried, to the degree tried, redirecting rent worked. One of today’s versions, the green tax shift, spreads out of Europe. Another, the Property Tax Shift, activists can win at the local level, building a world that works right for everyone.

the policy that the earth’s natural patterns suggests. Use the eco-system’s self-regulating feedback loops as a model. What then needs changing? Basically, the flow of money spent to own or use Earth (both sites and resources) must visit each of us. Our agent, government, exists to collect this natural rent via fees and to disburse the collected revenue via dividends. Doing this, we could forgo taxes on homes and earnings and subsidies of either the needy or the greedy. For more, see our web site, our pamphlet of the title above, or any of our other lit pieces; ask for our literature list.

in part the Great Green Tax Shift maxed out. Economically, taxing pollution and depletion does reduce pollutants and extracts – and thus the tax base; plus such taxes are regressive, requiring a safety net. On the other hand, collecting site rent is progressive and generates a revenue surplus payable as a dividend to residents, which can serve as the safety net. Environmentally, taxes on waste and extraction do not drive efficient use of land, as does getting site rent.

an alternative to conventional land trusts. Just as it seems some functions should not be left to the market – private courts and cops invite corruption (while private mediation is fine) – just so some land should not be left in the market. That said, sacred sites do not make much of a model for treating the vast acreage of land that we need to use. So the usual trust model, which is anti-use and counter-market, can not apply where it’s needed most. Trust proponents worry about ownership and control – two very human ambitions – but they’re not central. Supposedly, we the people own millions acres – acres that private corporations treat as private fiefdoms – and conversely, the Nature Conservancy owns wilderness the public can some places use as parks. So, the issue is not who owns but who gets the rent – ideally, all of us.

a neologism for sharing “rent” or “social surplus” – the money we spend on the nature we use. When we buy land, such as the land beneath a home, we typically pay the wrong person – the homeowner. Instead, since land cost us nothing to make and is the common heri-tage of us all, rather than pay the owner, we should pay ourselves, our neighbors, our community. That is, we should all pay land dues to the public treasury, then our government would pay us land dividends from this collected revenue. It’s similar to the Alaska oil dividend, almost $2,000 last year. Indeed, the annual rental value of land, oil, all other natural resources, including the broadcast spectrum and other government-granted permits such as corporate charters, totals several trillion dollars each year. It’s so much that some could be spent on basic social services, the rest parceled out as a divi-dend, as Tom Paine suggested, and taxes (except any on natural rents) could be abolished, as Thomas Jeffer-son suggested. Were we sharing Earth by sharing her worth, territorial disputes would be fewer, less intense, and more resolvable.

what you do when you see economies as part of the ecosystem, following feedback loops and storing up energy. Surplus energy – fat or profit – enables us to produce and reproduce. To recycle society’s surplus, the commonwealth, geonomics would replace taxes with land dues (charged to users of sites and resources, including the EM spectrum, and extra to polluters), and replace subsidies with rent dividends to citizens (a la Alaska’s oil dividend). Without taxes and subsidies to distort them, prices become precise, reflect accurately our costs and values; then, motivated by no more than the bottom line, both producers and consumers make sustainable choices. While no place uses geonomics in its entirety, some places use parts of it, most notably a shift of the property tax off buildings, onto locations. Shifting the property tax drives efficient use of land, in-fills cities, improves the housing stock, makes homes affordable, engenders jobs and investment opportunities, lowers crime, raises civic participation, etc – overall it makes cities more livable. Geonomics – a way to share the bounty of nature and society – is something we can work for locally, globally, and in between.